Speed is the Name of the Game
Fast decisions, rapid adaptations—welcome to the era of Industry 4.0.
The vision of Industry 4.0 is to provide companies with the flexibility to respond quickly to the rapidly changing demands of the markets, increase the customization and personalization of products, shorten product life-cycles, and increase productivity.
Modern technology, vertical and horizontal process and system integration, decision support systems, and cyber-physical systems all come together seamlessly allowing a factory to become smart and agile. Assets, processes, and applications will respond in real-time, drastically reducing the time between an event occurring and the implementation of an appropriate response.
Increasing the speed at which companies can identify and react to changing conditions will be one of the biggest competitive advantages over the next few years. In fact, you could argue it will be more than a competitive advantage as customers will simply expect it.
Why is this so important?
The answer lies in the direct correlation between decision speed and profitability. Studies have repeatedly shown that the faster an organization can make and execute decisions, the greater its sales and profitability. A notable study by Jay Robert Baum and Stefan Wally, conducted over four years across 318 companies in 10 industries, found that strategic decision-making speed was the biggest predictor of a firm's subsequent growth and profitability.
McKinsey & Company confirmed this in 2019, highlighting that the best organizations make good decisions quickly and execute them rapidly. These organizations were twice as likely to report superior returns on their decisions and exhibited higher overall company growth rates.
In addition, According to Orgvue’s Time to Decision research. organizations with access to the right data make decisions addressing inefficiency and ineffectiveness 30% faster than those who don’t. Those same organizations also have seen 16% higher profits, as a percentage of total revenue.
Let's break down the types of latency that occur between when an event happens and when the response takes effect, and see how Industry 4.0 speeds them up based on Acatech’s Industrie 4.0 Maturity Index 2020:
Insight Latency
Definition: Insight latency is the time it takes to become aware of an event and gather the necessary information about it. This includes detecting the event, capturing data, and making it available for analysis.
How Industry 4.0 Speeds It Up: With real-time data collection and advanced sensors, Industry 4.0 significantly reduces insight latency. Instead of waiting for manual reports or delayed updates, data from connected devices and systems is instantly available. For example, a sensor on a production line can immediately alert managers to a malfunction, allowing for swift identification of the issue.
Analysis Latency
Definition: Analysis latency is the time taken to process and understand the gathered data. This involves analyzing the information to determine the cause and implications of the event.
How Industry 4.0 Speeds It Up: Big data analytics and artificial intelligence (AI) play a crucial role in shortening analysis latency. Automated data processing tools can quickly sift through large volumes of data, identifying patterns and insights that would take human analysts much longer to uncover. Machine learning algorithms can predict potential problems and recommend solutions in real-time, accelerating the analysis process.
Decision Latency
Definition: Decision latency refers to the time it takes to decide on a course of action based on the analyzed data. This includes evaluating options, consulting with stakeholders, and making a final decision.
How Industry 4.0 Speeds It Up: Decision support systems and AI-driven recommendations drastically cut down decision latency. These systems can provide decision-makers with clear, data-backed options and potential outcomes, reducing the time spent deliberating. For instance, if a machine is predicted to fail, the system can suggest maintenance actions immediately, allowing for quick decision-making.
Action Latency
Definition: Action latency is the time it takes to implement the chosen response. This includes mobilizing resources, executing the plan, and ensuring the response takes effect.
How Industry 4.0 Speeds It Up: Automation and interconnected systems significantly reduce action latency. Once a decision is made, automated processes can be triggered to carry out the necessary actions without human intervention. For example, an automated maintenance system can initiate repair protocols as soon as a failure is detected, ensuring rapid response and minimal downtime.
References:
Baum, J Robert & Wally, Stefan. (2003). Strategic Decision Speed and Firm Performance. Strategic Management Journal. 24. 1107 - 1129. 10.1002/smj.343. https://www.researchgate.net/publication/227662310_Strategic_Decision_Speed_and_Firm_Performance
McKinsey & Company – Decision making in the age of urgency, 2019: https://www.mckinsey.com/capabilities/people-and-organizational-performance/our-insights/decision-making-in-the-age-of-urgency
Orgvue’s Time to Decision, 2020: https://www.orgvue.com/resources/articles/organizations-need-to-take-control/
Acatech - Industrie 4.0 Maturity Index. Managing the Digital Transformation of Companies - Update 2020: https://en.acatech.de/publication/industrie-4-0-maturity-index-update-2020/